Macedonia

A Prime Investment Destination

December 16, 2013

Macedonia boasts one of the best-performing economies in Europe. It registered a 3.4% GDP rise in the first six months of 2013, three points above the European Union average. For such a modest-sized country, occupying a territory of just 10,000 square miles and with a population of just over 2 million, Macedonia punches well above its weight in economic strength, investment potential and development prospects.

Thanks to a raft of free-trade agreements signed in recent years with the EU, the European Free Trade Association (EFTA) and regional powerhouses like Turkey and Ukraine, Macedonia provides preferential access to a market of more than 650 million consumers. The EU ranks as Macedonia’s leading trade partner, with around two-thirds of all goods exported in 2012 destined for the other 27 member states, while more than 58% of the country’s imports originated in the EU.

Macedonia also offers great potential for additional growth in the future, with EU-leading fundamentals—such as a public debt ratio of 33.8%, the fourth lowest in Europe; annual inflation of 2.8% projected for 2013; a budget deficit of just 3.9% in 2012—and a firm business-friendly vision under the leadership of Prime Minister Nikola Gruevski, who took office in August 2006 and was re-elected in 2011.

In October 2013, Fitch Ratings confirmed Macedonia’s long-term currency and bond ratings as BB+, with a stable outlook. Fitch predicts that GDP will continue to expand by 2.7% in 2013, before strengthening in 2014–15 as exports increase and significant public investment gains momentum. While challenges—such as unemployment, which stood at 28.8% in the second quarter of 2013, despite a drop of ten points—remain, most of the country’s key economic indicators are pointing in the right direction.

“Macedonia is a dynamic European economy, with solid macroeconomic fundamentals,” confirms Zoran Stavreski, the nation’s vice prime minister and minister of finance. “We have the most attractive tax regime in Europe and technological industrial development zones (TIDZs) where we provide ten-year tax holidays and even cash incentives.”

With a flat 10% corporate and personal income tax rate, and no levy on reinvested or retained profits, Macedonia aims to let those who generate capital in the country reap the benefits in the short term, with a view to stimulating greater investment in the long term. Foreign investment in Macedonia’s TIDZs already accounts for over a fifth of total exports by value, and the trend looks set to continue, adding still more capacity in 2014 and beyond.

Paving the Road for International Investors

Stavreski believes that while Macedonia’s fiscal regime is undoubtedly an important factor, the country’s commitment to creating a pro-business climate also has served as a magnet for overseas capital. According to a 2012 World Bank report, inflows of foreign direct investment accounted for 4.5% of the nation’s $10.4 billion GDP in 2011.

Over the last six years, Prime Minister Gruevski’s government has made an effort to “streamline procedures to create a simple, clear environment for investors,” Stavreski notes, “including a fast track for establishing companies and getting licenses, as well as reinforcing investment protection.”

High-caliber multinationals are committing to ventures in Macedonia.

In line with EU economic development guidelines, the Gruevski government launched its National Strategy for Sustainable Development in 2010, adopting a “bottom-up approach to policy-making that enabled the private sector to be directly involved in the process,” Stavreski points out. The National Council for Sustainable Development includes public and private sector players, who work together to upgrade the nation’s regulatory and institutional framework while ensuring effective stakeholder consultation.

The result is that Macedonia has an “institutional architecture that is unique in Europe, in terms of our approach to investment,” Stavreski says. “We combine institutions that are directly in charge of looking for investors, putting them in contact with top government officials, solving any problems by creating tailored programs, and following up on the investment as it develops.”

Ideal Business Conditions

The commitment to making it as simple as possible to invest and set up a new venture—by removing red tape and bureaucratic hurdles, and then going the extra mile to ensure it prospers, providing support every step of the way—has helped Macedonia move up the World Bank’s overall business climate rankings from 94th place in 2006 to 23rd in 2012.

At the same time, Macedonia remains one of the most competitive places to do business in southeast Europe when comparing operational overheads such as salaries, logistics and regulatory risk. Wages in Macedonia are up to 50% lower than in other eastern European countries. Coupled with low taxes and duty-free access to markets and suppliers, manufacturing costs in Macedonia rival those of China, enabling investors to benefit from proximity to European markets while paying Far Eastern prices.

However, Macedonia’s value proposition is not just cost-efficient, it is also effective. The country’s advanced telecommunications infrastructure and highly trained workforce—with plenty of multilingual graduates and engineers available for hire—allow it to compete not just in cost but also in capacity with business process outsourcing (BPO) giants like India.

These key factors have already attracted many international investors with strong interest in the agribusiness, electronics, food processing, health products and high-tech sectors. In the automotive sector alone, multinationals of the caliber of Johnson Matthey, Johnson Controls, Kemet, Van Hool, Kromberg & Schubert, and Draexlmaier have committed to ventures in the country.

According to the minister, corporations, faced with recurring unrest across North Africa and lingering economic hardship elsewhere in Europe, are constantly on the lookout for investment destinations that offer political stability and economic predictability without requiring sacrifices that affect the business’s bottom line. In his opinion, Macedonia offers a hard-tobeat combination that is worth exploring.

Tourists Welcome

Pristine water and a rich heritage make Lake Ohrid an ideal tourist destination.

Macedonia is also drawing in leisure travelers, with the government’s Skopje 2014 project aiming to put the national capital on the global tourism map. A multimillion-dollar initiative, comprising the construction of some 20 government buildings and museums, as well as 40 monuments celebrating the country’s rich heritage, Skopje 2014 is designed to attract many more tourists than the 650,000 who visited in 2011.

“Macedonia has made great strides in the last couple of years, and we are at a turning point for major developments in the tourism sector,” Stavreski says. “This is one of the few places in Europe where smart developers can build great places and market them as unique experiences to appeal to European and other global travelers.”

While many of its rivals are still suffering from the effects of the global recession, Macedonia possesses a “dynamic, emerging economy with a stable macroeconomic situation, an enabling business environment, an attractive tax package and pro-business policies. We have achieved twice the growth of Europe in the past seven years and have very good potential,” he continues.